Fed poised for $10 billion taper as Bernanke bids adieu

Turmoil
in emerging markets and a month of disappointing job growth at home are
unlikely to deter the Federal Reserve from trimming its bond-buying stimulus on
Wednesday, as Ben Bernanke wraps up his last policy meeting at the helm of the
U.S. central bank.

Overall
signs of improvement in the U.S. economy suggest Fed officials will stay on
track to cut monthly purchases of Treasuries and mortgage-backed securities by
$5 billion each, bringing the total of their monthly asset purchases to $65 billion.

The
meeting is Bernanke's last before Vice Chair Janet Yellen moves into the top
spot.

Bernanke
took the Fed far into uncharted territory during his eight years on the job,
building a $4 trillion balance sheet and keeping interest rates near zero for
more than five years to pull the economy from its worst downturn in decades.

With
those efforts beginning to pay off -- and concerns growing over
possible harm from so much money printing -- the Fed announced plans
last month to phase out the bond buying by late this year unless the economy
takes a decided turn for the worse.

It
started by trimming its monthly purchases to $75 billion from $85 billion, and
on Wednesday, the U.S. central bank is expected to shave another $10 billion.

Even
so, the Fed is nowhere near to making a decision to raise rates. Policymakers
are expected to stick to their promise to keep rates near zero until well after
the U.S. unemployment rate, now at 6.7 percent, falls to 6.5 percent. The Fed
is set to announce its decision at 2 p.m. ET.

A
dismal employment report for December showing businesses added far fewer jobs
than expected raised some doubts about the Fed's commitment to keep tapering
its stimulus.

But
largely upbeat data in recent weeks, from consumer spending and confidence to
industrial production, bolstered the view of an improving economy, which
forecasters estimate grew at an above-trend annual rate of 3.2 percent in the
fourth quarter after notching a 4.1 percent advance in the previous quarter.

The
show of strength provides a welcome backdrop for Bernanke, who steps down on
Friday after an unusually tumultuous and highly experimental stint atop the
world's most influential central bank.

Emerging
Distractions

Steep
losses in emerging market assets over the past week led some to question whether
the Fed might put plans to trim its bond buying on hold. Analysts said the
prospect of less Fed stimulus had added to other worries, from signs of slower
growth in China to political turmoil in countries from Turkey to Thailand, and
helped spark investors' flight.

That
move could make the Fed's decision to trim its bond buying even easier,
economists said.

"It
would take a full-blown crisis that ensnares all (emerging market economies) to
have a material effect on the U.S. economy, and I don't think that's what they
see," said Roberto Perli, a former Fed official who is now a Washington-based
partner at economic research firm Cornerstone Macro.

"Clearly
emerging-market financial markets are in turmoil for reasons that have little
or nothing to do with the Fed likely tapering again."

That is
not to say the decision will be a slam dunk.

Dallas
Federal Reserve Bank President Richard Fisher, who is a voter on the central
bank's policy-setting panel this year, has argued for a more aggressive
withdrawal of purchases.

On the
other end of the spectrum, Minneapolis Fed President Narayana Kocherlakota,
also a voter, has argued for more, not less, stimulus, and that view could
translate into a dissent.

Still,
the Fed puts a high premium on consensus, and Kocherlakota may feel that
presenting a united front on policy could be a stabilizing force for financial
markets, Eaton Vance's Stein said.

"I don't think
it's completely pro forma," he added, "but I do think the consensus
of the committee is to taper, about in line with the last meeting."